Equity release lending returns to normal conditions: Key

Plan sales dropped 9% from 11,772 in Q3 2019 to 10,671, although 30% more plans were taken out between Q2 and Q3 2020.

Additionally, the value of property wealth released was virtually unchanged at £884 million compared with £887 million in 2019.

Older homeowners on average released nearly £83,000 in property wealth during the three months compared with £75,300 in the third quarter of 2019 as they focused on repaying borrowing such as mortgages.

Around two-thirds of plans (67%) taken out were drawdown enabling customers to manage their borrowing. Interest rates in the three months started from 2.47% with the average customer paying 3.05% - the lowest average rate on record.

Almost half (47% or £415 million) was spent on clearing debts while a quarter (25% or £221 million) was used to support family and friends via gifting.

Will Hale, CEO at Key, said: “In Q3, we saw a return to more normal market conditions driven by many customers looking to make their finances more robust by reducing their outgoings and/or supplementing their income. While the payment holidays offered by big residential lenders have certainly benefitted many, older borrowers who either fear redundancy and a tough climb back into work or early retirement have looked to use equity release to reduce the financial pressure they are feeling. Safe in the knowledge that not only are rates at historic lows but through modern flexible equity release plans they can service interest or make ad hoc capital repayments if they so wish to mitigate the impact of roll-up interest.

“Others have seen the stamp duty holiday as the ideal time to help younger relatives onto the property ladder and we’ve seen £221 million pumped into the housing market with recipient’s receiving an average of £57,549 to support their dream of owning a home. The market is maturing and is now very much focused on essential rather than discretionary spending.

“While it is hard to predict what the market might look like at the end of 2020 what we can say is that demand remains strong and now more than ever there is a focus on providing the right type of advice for customers.

“Less than 15% of those who enquire about equity release end up taking a plan. Instead they downsize, find support from family or decide, with guidance from their adviser, that other later life lending products may or be suitable e.g. retirement interest only mortgages or whilst equity release wasn’t right for them at the moment it might be an option to revisit in the future. Those who did take out equity release used it for a variety of reasons including repaying debt to make themselves more financially secure and helping to support their wider families. Holidays and home renovations now account for under 15% of the funds released.

“As an industry, the pandemic forced us to re-evaluate our approach to serving customers and truly embrace technology. Video conferencing, digital signatures and faster processing will benefit our current and future customers. There will be tough times ahead, but the market remains strong and will continue to evolve to ensure that products and advice services are well positioned to help customers use their housing equity to navigate through later life.”